Bush, Lawmakers Rush Forward Bailout Plan

Updated on: September 22, 2008 / 7:30 PM
/ CBS/AP

Scrambling for a quick accord on the $700 billion bailout, the Bush administration and leading lawmakers have agreed to include mortgage aid and strong congressional oversight along with unprecedented help for failing financial institutions, a key lawmaker said Monday.

Unimpressed, investors sent stocks plummeting anew, pushed oil up $16 a barrel and propelled gold prices ever higher as they searched for a safe place to park their money.

President Bush prodded Congress to pass the administration's rescue plan quickly, declaring, "The whole world is watching." And there did seem to be movement in talks between the White House and Capitol Hill.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said "a great deal of progress has already been made." And a government official with knowledge of the talks said the administration had agreed to create a plan to help prevent foreclosures on mortgages it acquires as part of the bailout - a key demand of Democratic lawmakers.

Under the Democrats' plan, companies who participate in the bailout must agree to limit executive pay, bonuses, and severance packages, reports CBS News correspondent Bob Orr.

Wall Street barons are among America's highest paid, Orr reports. The CEO of Goldman Sachs last year made $70 million; his counterpart at JP Morgan made nearly $28 million; and the head of Merrill Lynch earned $24 million.

Under other additions the Democrats are asking to the administration package, according to a draft of the Congressional plan obtained Monday by Politico.com and The Associated Press:

Companies that unloaded their bad assets on the government in the massive rescue would have to limit their executives' pay packages and agree to revoke any bonuses awarded based on bogus claims.

The proposal by Sen. Chris Dodd, D-Conn., the Banking Committee chairman, would give the government broad power to buy up virtually any kind of bad asset - including credit card debt or car loans - from any financial institution in the U.S. or abroad in order to stabilize markets.

Dodd told CBS's The Early Show on Monday that taxpayers should be "first in line" to get money back once conditions in the industry stabilize and recover.

"We want oversight," he said, adding, "It's important that we act quickly, but it's more important that we act responsibly."

But it would end the program at the end of next year, instead of creating the two-year initiative that the Bush administration has sought. And it would add layers of oversight, including an emergency board to keep an eye on the program with two congressional appointees, and a special inspector general appointed by the president.

The plan also would require that the government get shares in the troubled companies helped by the rescue.

Wall Street didn't seem comforted. The Dow Jones industrials were down nearly 400 points near the end of the trading day.

Investors were uncertain just how successful the administration's plan will be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.

Congressional aides said the House could act on a bailout bill as early as Wednesday.

Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policy making process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."

The proposal that Dodd sent to Treasury Secretary Henry Paulson would let judges modify the mortgages of homeowners in bankruptcy to allow them to keep their homes.

It also would require that the government come up with "a systematic approach for preventing foreclosure" on the mortgages it acquires as part of the bailout. That would include the home loans held by Fannie Mae and Freddie Mac, the troubled mortgage giants now under the control of a government regulator.

Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."

The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.

That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.

Frank said that lawmakers "are building strong oversight" into the new bailout measure.

"The private sector got us into this mess," he said, "The government has to get us out of it. We do want to do it carefully."

Republican presidential candidate John McCain, speaking Monday on NBC's "Today" show, said, "We are in the most serious crisis since World War II."